Differences in Herding: Individual vs. Institutional Investors

31 Pages Posted: 13 Feb 2009 Last revised: 16 Feb 2015

See all articles by Wei Li

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Steven Shuye Wang

School of Business, Renmin University of China

Ghon Rhee

University of Hawaii at Manoa

Date Written: February 14, 2015

Abstract

Using a trading volume-based measure, we study the differences between institutional and individual investors in herding. First, better-informed institutional investors trade more selectively, whereas less-informed individuals allocate their investments evenly across stocks. Second, individual investors rely more on public information for their trades as they are influenced by market sentiment and attention-grabbing events. Third, institutional investors react asymmetrically to up- and down-market movements, whereas individual investors do not. Finally, despite these differences in herding both individual and institutional investors pay close attention to one another’s trades in forming a consensus.

Keywords: Herding, Individual and institutional trading volumes, Information asymmetry, Market returns

JEL Classification: G1, G12, G23

Suggested Citation

Li, Tina Wei and Wang, Steven Shuye and Rhee, Ghon, Differences in Herding: Individual vs. Institutional Investors (February 14, 2015). Asian Finance Association (AsianFA) 2015 Conference Paper, Available at SSRN: https://ssrn.com/abstract=1342209 or http://dx.doi.org/10.2139/ssrn.1342209

Tina Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Steven Shuye Wang (Contact Author)

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

Ghon Rhee

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

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